CalSavers: What California Employers Without a Plan Must Do

What CalSavers is and who it covers

CalSavers is California's state-run retirement savings program for workers whose employers don't sponsor a plan. Eligible employees are enrolled automatically through payroll deduction into an individual retirement account. They can opt out or change their contribution at any time, and the account belongs to them, not to you.

The law covers most California employers with employees, with some exceptions. The deadlines that phased the requirement in by employer size have now passed, so this is an ongoing obligation, not something coming later. If you have employees and no qualifying plan, you should be registered or have a plan in place.

The rule is a choice, not a mandate to start a 401(k). You can offer your own qualifying retirement plan, or you can facilitate CalSavers. Check the program's current eligibility rules or ask a licensed advisor how they apply to your business.

What registering actually asks of you

CalSavers is designed so that you don't choose investments, and you don't contribute money of your own. That doesn't mean there is no work. You become the link between payroll and the program, and that link has to be kept up.

In general, facilitating CalSavers involves these steps:

• Register your business on the CalSavers employer portal.
• Submit your employee information so the program can send each person notice and enrollment materials.
• Set up payroll deductions for employees who are enrolled and haven't opted out.
• Send the deducted contributions to the program on a regular schedule, each pay cycle.
• Add new hires, remove departures and update changes as they happen.

Where CalSavers falls short as a benefit

CalSavers satisfies the state requirement, but it works differently from a workplace plan. The default account is a Roth IRA, which employees fund with after-tax pay. Individual retirement accounts also carry annual contribution limits that are set each year and are generally lower than the limits on workplace plans, so check the current figures. Employees with tax questions should talk to a tax professional.

There is also no employer contribution, so CalSavers gives you nothing to point to when you are recruiting or trying to keep good people. Candidates who ask about retirement benefits will hear that you facilitate a state program. For some employers that is fine. For others, especially in competitive trades and healthcare, it may not be enough.

Employers with high turnover, seasonal crews or staffing arrangements should also plan for roster upkeep. Every hire and departure needs to be reflected, and payroll has to keep pace.

If your team is bilingual, make sure employees understand what the notices are. Many people see a mailing from a state program and aren't sure whether it is legitimate. A short explanation in the languages your team speaks, with a pointer to the program for questions, goes a long way. Keep to explaining how the program works rather than advising anyone whether to participate.

The alternative: offering your own qualifying plan

If you adopt a qualifying retirement plan, you can certify an exemption from CalSavers through the employer portal. The plan needs to be one the program recognizes, so confirm that yours qualifies before you certify. If your situation changes, for example a plan is terminated, the exemption may no longer apply.

The common options for small and midsize employers are a SEP IRA, a SIMPLE IRA and a 401(k), including safe harbor designs. Each differs in who can contribute, whether you must contribute, how much paperwork is involved and what it costs to run. We cover how those three compare in a separate article, so here the focus is on whether to move beyond CalSavers at all.

Some employers also join a pooled or group arrangement, where an outside provider handles much of the plan administration for many businesses. That can reduce the workload compared with running a standalone plan, but terms and responsibilities vary, so read the details carefully and ask who is responsible for what.

Federal law has offered tax credits to some small employers that start a new plan or make contributions. Eligibility and amounts change, so confirm current rules with a tax professional before counting on any credit in your decision.

• Do you want to contribute, through a match or a set contribution, or keep contributions employee-only?
• Is retirement something candidates and current employees ask about?
• Who would handle the administration: your payroll team, an outside provider, or both?
• How stable is your workforce, and how many people would be eligible?
• Can your payroll system or provider support the plan type you are considering?

Practical next steps for this month

Start by finding out where you stand. Check whether you are registered with CalSavers, whether you have certified an exemption, and whether either is current. Penalties can apply to employers who fall out of compliance after receiving notices. The amounts are set by law and can change, so check the current figures if you are unsure.

Then decide whether CalSavers is the long-term answer or a placeholder. If you want retirement to be a real part of your benefits offering, set a timeline to evaluate a plan of your own. A benefits review with an advisor is one option for working through plan types, payroll fit and employee communication.

Whichever path you choose, talk to your team about it. Employees respond better when they hear from you what the program is, what to expect on their paycheck, and where to take questions.

• Confirm your registration or exemption status on the CalSavers employer portal.
• Ask your payroll provider how it handles CalSavers deductions and remittance.
• List who is on your roster and make sure the program has current information.
• Decide whether you want to contribute to employee retirement savings.
• Talk with a licensed advisor or tax professional about plan options and any credits.

This article is general education for employers, not legal, tax or plan advice. Benefit rules and options depend on your group size, location and plan, so talk with a licensed advisor before making changes. Sixth Man Employer & Insurance Services, CA Insurance License #0I01929.